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Monday, March 26, 2012

Money grows on trees

We’ve all heard the saying, “Money doesn’t grow on trees.”
It’s a cliché: a catch-cry of people who need to make excuses. It is a saying that has come to mean
that money does not come in abundance.
But that is a misrepresentation.
Money is abundant and people can access that abundance whenever they see
fit. If you believe that money
does not grow on trees, perhaps it is because you have not learned how to plant
and tend your money trees. This
should be primary school stuff. As
a child who grows up on a farm learns instinctively how to plant and manage
crops, so too should all children be taught how to plant and manage their money
trees. If “money doesn’t grow on
trees,” then I suggest you have no trees.
Read on for information regarding the planting of your very own money
tree.

Money trees are like any other trees, they need to grow from
a seed and for the first few years, will not bear substantial fruit. If you are starting your money tree
from scratch (ie putting a few savings away in a separate bank account) don’t
expect too much from your tree until it grows to a substantial size. This could take years. But have faith
that in the long run it will grow.
We know this about trees: it is also true with money.

If you want to go ahead and buy an established tree so that
it grows faster and bears fruit immediately, you will need substantial
funds. If you don’t have these
funds you may need to borrow them.
The fruit that your tree bears will be needed to pay off your loan and
my not cover the interest in full for quite some time. For example, if you buy residential
property, you can borrow the amount from a bank. Most of these investments will
require all of the rent (fruit) to cover your mortgage and you will still need
to put up the costs of management fees, insurance, rates, water and
maintenance. But your investment will grow over the next ten years and you will
eventually be able to harvest more fruit than you need for the upkeep of the
tree.

Take into account the seasons. During a drought, trees need more care and attention and
regular watering. So too will your
investment property during a real estate slump. If you have invested in shares, they too die off a little
during their own drought. Do not
be too quick to dig up all of your sick and dying money trees because there is
a lack of water. Do your best to
keep them healthy, knowing that there will be a change of season and when this
comes, your trees will grow taller and bear more fruit than ever before.

Do not put all of your faith in one tree. Sometimes, for whatever reason, a tree
will not do as well as others. If
you have a money orchard instead of just the one money tree, you will be able
to fend off natural disasters that may single out one tree. Continue to plant small trees even if
you have some large ones that are doing well. Reap the fruit and replant the seeds instead of wasting the
entire crop. A share portfolio
will grow much faster if you reinvest your dividends. A positive cash flow
property will be paid off faster if you use the extra money to pay down the
loan.

That is all I have today on money trees. We can go into detail in another
post. For now, begin by planting
your first money tree. Put 10% of
your income into a separate bank account until it grows enough to purchase an
investment.